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Officials tell bankers at Davos that regulation is coming

The world economy is recovering but remains fragile and dogged by deficits, officials said Saturday at the end of the Davos summit, which was clouded by divisions over US plans to curb risk-taking by banks.

AFP - The world economy is recovering but remains fragile and dogged by huge deficits, top officials said Saturday at the end of a Davos summit clouded by divisions over banking reform.

Asia is leading the resurgence after the worst crisis for decades with China eyeing double-digit growth, but the United States and Europe remain dogged by unemployment and the eurozone is grappling with a crisis over Greece.

"The situation is better, but fragile," said International Monetary Fund (IMF) chief Dominique Strauss-Kahn.

"We have to go ahead strongly in the financial sector reform, much more rapidly than has been done until now."

"The fiscal sustainability problem is going to be one of the biggest, maybe the biggest problem.... We'll have to deal with this for five, six or seven years, depending on the country," he said.

A bust-up over US plans to curb risk-taking by banks again took centre stage on the last day of the World Economic Forum, with central bank chiefs huddling with finance ministers and officials, and top private bankers.

The meeting brought together British and French finance ministers Alistair Darling and Christine Lagarde, European Central Bank chief Jean-Claude Trichet and the heads of top private banks.

"There's going to be regulation, they (the bankers) understand that," said US Congressman Barney Frank, one of the few willing to talk after the closed-door meeting.

Asked if the bankers present accepted the need for greater regulation, he said: "Frankly it doesn't make any difference whether they did or not. They aren't in charge of this.

"The political leadership certainly in the United States is going to go ahead with tough, sensible regulation," he added.

The banking issue has clouded the four-day Davos meeting, starting with French President Nicolas Sarkozy's opening address in which he backed US President Barack Obama's tough clampdown plans.

At the same time there has been cautious optimism about the outlook for global recovery after the near-meltdown of the last 18 months.

Chinese and Indian delegates have trumpeted their country's healthy growth rates of nearly nine and seven percent respectively, and the United States hailed Friday's unexpectedly-rosy 5.7 percent GDP growth figure.

But unemployment remains a worrying problem in the United States and Europe, which both have a jobless rate of around 10 percent, despite a return to overall growth.

"What we're seeing in the United States is a statistical recovery and a human recession," said Larry Summers, Obama's chief economic advisor, commenting on the jobless recovery phenomenon.

Warnings of a double-dip recession -- where nascent recovery fades back into a new slowdown -- have abounded in Davos as leaders mull exit strategies from huge stimulus packages agreed to prevent a full-blown Depression last year.

France's Economy Minister Lagarde said she followed a "three Rs" principle -- recovery, reform, and restoring public finances.

But she said timing was crucial.

"Balancing between the recovery process that has to continue, the reform that needs to be maintained and the restoring of public finances is a tough line to draw," she said.

A top Chinese banker meanwhile said that Beijing could move on the sensitive issue of its currency's exchange rate once other countries start to withdraw their stimulus packages.

China has been under fire for keeping the yuan weak against the dollar, a strategy which critics say is aimed at keeping Chinese exports competitive.